The Impact of COVID-19 on Direct Commodities

The Impact of COVID-19 on Direct Commodities

November 09, 2020 | Procurement Strategy

It appears Q2 2020 suffered the most as there are currently signs of recovery in Q3 after the ease in global lockdown restrictions. Commodities under the directs category were impacted too particularly chemical, packaging and food.

Chemical Commodities

U.S. spot and contract ethylene prices plunged to new lows in the first half of 2020 as demand reduced drastically. In January, U.S. naphtha prices hit a new high of 133.50 cents per gallon but by March it fell to 24.25 cents per gallon. The outlook in Europe was similar, as ethylene prices peaked in January at 802.50 euros metric ton and plummeted to 278.50 euros per metric ton. These prices are anticipated to show slow recovery.

Propylene on the other hand witnessed a huge rise in global demand in the first half of 2020 driven by packaging, medical and personal hygiene demands to manufacture PPE kits, face masks and disposable medical equipment. As restrictions start to ease, demand for propylene is starting to pick up with a resurgence in automotive and construction business, which were brought to a halt previously.

Packaging Commodities

The packaging sector was stable for most of the first half of 2020 as people across the world were locked inside their homes, which increased online shopping. Packaging materials such as plastic films, aluminum foils and paper witnessed a surge in demand for packing food products. Plastics are back in business in 2020 and has the highest demand as it is safer, affordable and long-lasting.

Polycarbonate materials and other plastics used in the packaging of medical equipment were not majorly affected in the pandemic. In addition to hand sanitizers, PPE kits and face masks became integral worldwide, with face masks being made with PET. Thus, such downstream applications of PET supported its overall demand through the pandemic and continues to do so.

Food Commodities

Food commodity prices were broadly stable in Q2 despite hard times due abundant supply in the market. According to the U.S. Department of Agriculture, the global production of three major grains — wheat, maize and rice — is expected to rise at a rate of 3.6% from Sep. 2020 till Aug. 2021 to keep up with increasing consumption.

Certain food commodities are expected to witness subdued demand due to projected declines in biofuel production. Biofuels have been an integral source of demand growth for some food commodities since 2002, which resulted in food price spikes in 2007–08 and 2010–11. However, the shutdown of transport sector reduced the use of fuel and hence biofuels. Based on restricted transport norms, the decline in biofuel consumption could directly put pressure on food commodities such as maize, edible oils and sugars.

 

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Binayak Shrestha

Vice President, Consulting

With more than 18 years of experience, Binayak is a seasoned professional in supply chain and indirect spend management and is a recognized leader in procurement transformation, change management, and people development.

At GEP, Binayak is responsible for large-scale strategic engagements, delivering sustainable cost savings and process improvement across various industries.

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Sources and References

 

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